Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, November 9, 1993                   TAG: 9311090241
SECTION: VIRGINIA                    PAGE: C3   EDITION: METRO 
SOURCE: BONNIE V. WINSTON STAFF WRITER
DATELINE: RICHMOND                                LENGTH: Medium

PENSION BOARD'S BUY OK'D

The real estate firm, RF&P Corp., has major management and tax problems, said the Joint Legislative Audit and Review Commission, but could prove a strong long-term investment for the Virginia Retirement System.

Among RF&P's vast holdings are Potomac Yard, the abandoned railroad yard in Alexandria that was offered last year by Gov. Douglas Wilder as the site for a new Washington Redskins football stadium.

The deal was nixed amid controversy. Lawmakers called for the audit commission to investigate whether the pension board, appointed by Wilder, was looking out for retirees' best interests when it purchased RF&P in 1991.

The pension board is the only public pension system in the country that owns 100 percent of a real estate company.

The audit commission's staff reported Monday that RF&P's large stock of undeveloped land may be a greater risk than the pension system should assume. But it advised against selling RF&P or its principal land holdings because that likely would trigger a $454 million tax liability. RF&P is negotiating with the Internal Revenue Service for a change in its tax status that could reduce that figure.

According to the audit commission report, the pension board paid $385 million for the company.

Philip A. Leone, the audit commission director, said the pension board should have been "more aggressive" before the purchase in questioning its professional advisers about RF&P's tax liability.

The board spent $3.8 million on professional advice before the sale, audit commission records show.

The audit commission recommended that the pension board move to minimize its possible tax liability on the undeveloped land but maximize gains from developed property, such as Crystal City, a glitzy stretch of high-rise offices and apartments near Washington National Airport. That development has provided more than 30 percent of RF&P's earnings, according to audit commission figures.

The audit commission said the pension board should have kept the General Assembly better informed of its intent in buying RF&P, and that oversight and management of RF&P need tightening.

For example, seven vice presidents at RF&P earn 51 percent of the $2 million in salaries and benefits paid the company's 22 workers. The vice presidents also work under a contract - to expire in March - requiring RF&P to pay them 2.5 times their salary should their duties change or if they are terminated without cause.

The audit commission staff noted that the contracts were negotiated before RF&P was purchased by the pension board.

The audit commission also called for RF&P board appointments to be "free from political interference" and based on "demonstrated experience in real estate, investment, finance or business management."

Sen. Hunter Andrews, D-Hampton, an audit commission member, laughed at the suggestion.

"Who do you think appoints the [pension] board that appoints the [RF&P] board?" he asked audit commission analyst Wayne Turnage.

"The governor," Turnage said.

"And that's free from politics?" Andrews asked, to a burst of laughter from the room.